This month's investment stories - reasons to be cheerful in November
For now, the International Monetary Fund (IMF) meeting in Peru hasn’t resulted in much. Growth estimates were cut by a little, Russia and Syria were discussed, and emerging market participants, in particular, expressed their ‘Fed fatigue’ (the Fed is shorthand for the Federal Reserve, which works like the Bank of England in deciding US interest rates) and a wish that the US would get on with it and raise interest rates.
Instead, we’ve been reminded that investing isn’t just about emerging markets, it’s about individual companies too, and the surprises they can spring on us.
Firstly, Glencore, a FTSE 100 company and no stranger to controversy, has become a takeover target following over-indebtedness allied to the ongoing fall in commodity prices. Secondly, we’ve had the VW saga (I’m sure Leonardo Di Caprio will come up with a better title in the film it’s rumoured he’ll be making on the subject). VW has owned up to cheating on diesel emissions tests and the cost of the potential fines, penalties and class action suits that could occur are eye-watering.
On the face of it these are just stock-specific issues but it was pointed out to me recently that both companies’ fortunes could affect the wider markets. Glencore started life as a commodity trader and few commodities today are untouched by this link. As most new cars are sold on finance these days and the contracts are based on the resale value after three years, what the value of VW diesel cars will be in this time must also be a concern. Are they too big to fail? Possibly.
As for November, there are a couple of things to watch out for: the UN climate change meeting in Paris comes first, the goal of which is to reach a legally binding agreement from all nations.The governor of the Bank of England, Mark Carney, has waded in on the debate recently, pointing out the risks to the financial markets and economies. So it may well get back on the agenda of companies, which have been more focused on their own survival for the past few years.
We’ve [FundCalibre] just launched a ‘Responsible Investing’ sector, consisting so far of four elite-rated funds. Each has a differing mandate but they are all looking for companies that act responsibly and generate profits. These funds are EdenTree Amity UK, First State Asia Pacific Sustainability, Rathbone Ethical Bond and Standard Life Investments UK Ethical Equity.
The end of November always ends in a frenzy of excitement too, with the 21st-century phenomenon that is Black Friday. This is the day after Thanksgiving and the start of the Christmas shopping season, with huge discounts to attract bargain hunters. It is so-called as retailers traditionally operated at a financial loss (‘in the red’) from January to November, and Black Friday (27 November this year) indicates the point at which they begin to turn a profit or go ‘in the black’. We can expect more wrestling over 50-inch TVs and websites crashing.
If that’s not your scene, you could look at investing in the retail sector. Rathbone Global Opportunities has Visa, Mastercard and Amazon among its top 10 holdings. AXA Framlington Global Technology has Apple and Visa, while closer to home Schroder Recovery has put its faith in Tesco coming good.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.